Dealership Facility & Image Programs – Cost Reduction Opportunities

Dealership sales are growing once again and so too are the demands on the dealer’s time, their staff’s time and their financial resources. It seems like most manufacturers have some sort of required image program, requirements for facility upgrades or renovation programs underway that will directly impact many dealers this year. If not required by a manufacturer, many dealerships might be pursuing upgrades or expansion, or have acquired a new brand on their own, and may be tying in a manufacturer required upgrade at the same time. The financial scope of the upgrades can be significant to a dealership and range between $1.0MM and $3.0MM, based on our experience.

Challenges to dealerships

Many of the dealerships that we have talked with are facing some of the following challenges:

How to budget realistically for a facility project in order to secure bank financing?

Will an architect and/or a general contractor be necessary for the project?

Will architects and general contractors manage the project in a cost effective way?

How does a dealership manage a large facility project with an already lean staff?

What options do dealerships have to control the costs of facility projects?

Image programs & upgrades

In our dealership experience, it seems that most manufacturers have design firms that they work with to deliver a consistent look, feel and image across a brand. The design firms will oftentimes specify and coordinate the desired look, signage, materials, furniture and fixtures for the image programs and upgrades.

Manufacturers and their design firms will also provide a detailed list of product specifications and a list of approved suppliers to work with. Whether the manufacturer is requiring an upgrade or the dealer is pursuing a facility project on their own, it seems that the typical approach is to hire an architect and/or a general contractor for design, drawings and detailed plans. Many architects and/or general contractors will also coordinate the bid or quote process for materials, construction, furniture and installation. That is where the opportunity comes in.

Project components – Opportunity to control costs

Controlling the workflow and cost of any large project first requires a breakdown of the major components or pieces of the project. Based on our experience, most dealership projects will consist of the following components:

Architect service – for design.

General contractor services – for design, bidding, construction and management.

Construction and installation – labor driven, controlled by the General Contractor.

Furniture – specifications and brand driven, but may provide freedom on sources/suppliers.

Fixtures – specifications and suppliers frequently mandated.

Freight – another opportunity for cost reduction.

Even though the manufacturer has strict product and material specifications for these projects, there are opportunities to control certain elements of the project and the related project costs.

Budgeting for image programs & facility upgrades

Developing an initial budget or project estimate is typically required to obtain the necessary financing for the project. Architects or General Contractors, if you have already selected one, can certainly provide a detailed forecast or estimate of all facility project costs once a design is finalized. In house personnel can do the same, but the process will require a significant amount of time and energy to coordinate bids and/or quotes.

Opportunities to control costs

While manufacturers control many of the variables related to image programs and facility upgrades, some elements of the project are still controllable by the dealer, and as such, can be managed to keep costs to a minimum.

Architect service – An architect may or may not be desired or needed if a general contractor with full design capabilities is selected.

General contractor – General contractors can be selected based on overall project costs or bids. General contractors will also typically coordinate the quote or bid process for the materials, construction, and installation components of a project.

Materials – Material specifications are called out for most projects down to the materials, color and brand, but there are processes available in some cases to request alternatives, and opportunities to source required materials from various qualified sources.

Furniture – Brands and styles of furniture tend to be specified, but there are many distributors of furniture and again, the source of that furniture might provide options to minimize costs.

Freight – As with any large purchase involving bulk and weight, an opportunity to manage costs can be found in the inbound freight component of the project. Negotiated discounts off of the quoted tariff rates can provide some real measurable savings in many cases.

How to coordinate the facility projects

The options for managing facility projects are numerous and really depend upon your budget, your available staff and your time as well:

Architect

General contractor

In-house staff

Outsourced provider

Some combination of the above

In-house staff

Utilizing existing management staff to coordinate parts of the facility project is certainly a common approach and chances are, someone on your management team will be the point person for parts of the project anyway. The key question however, how much time your existing staff can devote to the project, what will they be responsible for and given that, can they still be effective with their other primary responsibilities.

Outsourced providers

Outsourced providers can take a few different forms. An architect or general contractor is certainly an outsourced provider, as they typically control the overall project. A purchasing provider or dedicated purchasing resource can be pulled in to help a dealer coordinate some of the controllable elements of the project such as material sourcing, furniture, freight, and even assist in the sourcing and selection of a General Contractor.

Summary

Many dealerships are required to pursue facility or image upgrades this year, when sales are finally bouncing back and staff levels are lean. Some dealerships have chosen to remodel their facilities on their own and combine some required image upgrades with their planned improvements. Facility projects are expensive and can be quite a demand on dealerships with already thin staffs. Many dealers are looking for solutions to both provide additional resources for project management and resources who will manage costs effectively.

While many aspects of image programs are not negotiable as established by the various manufacturers, dealers do have some ability to control certain aspects of projects costs, including general contractor costs, materials, labor, furniture and freight.

Most dealerships will certainly want an internal management employee managing or coordinating the overall project and be a point of central contact. There are opportunities to utilize qualified third parties to assist in that management or procurement process to minimize costs and save internal employee time.

If you are interested in a quoting tool that can be used in managing the costs of facility or image programs, please contact Doug Austin via e-mail at: daustin@dealer-communications.com for a copy.